Question

1. After the acknowledgement of the Coronavirus pandemic and the stay-at-home orders, people began to buy food and other supplies in large amounts, and hoarded them. To this day paper products and hand sanitizers are still not easily available. However, the initial hoarding seems to have stopped for most products. Another even of interest is that in recent weeks due to high infection rates among the workers of meat packing companies, some have closed their doors temporarily, and pig farmers cannot get their products to the markets. Also, most restaurants have closed or are only operating at a fraction of their capacity, reducing their demand for food products. In the last few weeks, prices of groceries have risen sharply. Explain why the price of groceries have risen, given the circumstances listed above. Use a demand and supply model to explain your answer. Clearly describe how demand or supply curves would shift to the left or right with your reasoning for the shifts, and what would be the effect on price and quantity of groceries being produced with each shift.

Answer 1

With all the information given above, we can say that as the people are hoarding food items and necessities, they are also buying more of groceries. Also, it can be inferred that many people had shifted or had to shift to vegetarian food choices because of recent spike in coronavirus cases among meat packers which had made people stay away from meat and look into vegetarian choices or due to shortage of supply of meat due to the same reason people are buying more of groceries. Also, with restaurants working on a smaller scale and also due to shortage of meat products will serve vegetarian choices. All these factors will result in a shift of demand curve to the right side which will shift equilibrium price from PE0 to PE1 and equilibrium quantity from QE0 to QE1 as a result of creation of excess demand of groceries in the market with suppliers not able to increase the supply in short run due to which price and quantity both increase.

This is the only scenario which can be inferred from the statements given above.